Building wealth in the New Year: Smart investments for every stage of life

There are various ways in which we can save and invest our money throughout our lifetime. Ultimately, this is to build for our futures including those of our loved-ones and perhaps to also pass on a little something after we have gone too. 

Individual Savings Accounts (ISAs) are well known tax-efficient vehicles and they come in various forms. However, there are other investments that also don’t suffer capital gains tax, dividend tax and in some instances, attract income tax relief. There are investments that can be zero rated against inheritance………still. Here are some examples -

JISA (Junior Individual Savings Account)

JISAs are long-term, tax-free savings accounts for children.
In the 2024/25 tax year (the tax year runs from 6th April to 5th April), the savings limit for Junior ISAs is £9,000
You cannot have a JISA as well as a Child Trust Fund. If you want to open a JISA ask the provider to transfer the trust fund into it.

There are 2 types of JISA:
•    a cash JISA, for example, you will not pay tax on interest on the cash you save
•    a stocks and shares JISA, your cash is invested and you will not pay tax on any capital gains or dividends 
Your child can have one or both types of JISA.

Parents or guardians with parental responsibility can open a JISA and manage the account, but the money belongs to the child.

The child can take control of the account when they are 16, but cannot withdraw the money until they are 18.

LISA (Lifetime Individual Savings Account)

You can currently contribute up to £4,000 each tax year into your LISA. One of the most attractive features of this account is the government bonus. The government adds a 25% bonus to your contributions, up to a maximum of £1,000 per year – this is subject to certain criteria being met. This means if you save the full £4,000 annually, you'll receive an additional £1,000 significantly boosting your savings.

To open a LISA, you must be between 18 and 39 years old. Once opened, you can continue to contribute to the account until you are 50. Contributions made after your 50th birthday won’t receive the government bonus but the account will still earn interest or investment returns.

ISA (Individual Savings Account)

You do not pay tax on:
•    interest on cash in an ISA
•    income or capital gains from investments in an ISA

Putting money into an ISA
Every tax year you can currently invest up to £20,000 in one account or split the allowance across multiple accounts. 
Your ISA will not close when the tax year finishes. You’ll keep your savings on a tax-efficient basis for as long as you keep the money in your ISA account.

What you can include in your ISA

Cash ISAs can include:
•    savings in bank and building society accounts
•    some National Savings and Investments products

Stocks and shares ISAs can include:
•    shares in companies
•    unit trusts and investment funds
•    corporate bonds
•    government bonds

VCT (Venture Capital Trust)

A VCT is a company that buys small stakes in a large number of early-stage companies. The VCT can hold these companies for many years and support their growth, adding new investments over time.

As well as providing investors with an easy way to access these small, unlisted or AIM-listed companies, VCTs offer a number of tax reliefs. VCTs offer up to 30% upfront income tax relief, tax-free dividends and an exemption from capital gains tax on the shares should they rise in value. It is important to understand that smaller companies can struggle in their early years, and some will not be successful. Therefore, the tax incentives are there to help compensate investors for the risk they take with their money.

When you invest in new VCT shares, you are entitled to claim these tax incentives on investments up to £200,000 each year. You need to hold the VCT for a period of 5 years.

BR (Business Relief)

BR currently provides a valuable relief from Inheritance Tax (IHT). Its purpose is to reduce IHT charges arising on the transfer of qualifying business interests during a person’s lifetime or on their death to allow the business to continue. In many circumstances, it can mean that a business can be passed on free of IHT. 

When it was introduced by the UK government in 1976, the intention was to make it easier for family-owned businesses (such as farmers) to be passed from one generation to the next without triggering a large inheritance tax liability that could potentially force the beneficiaries to sell the business. Although the recent Budget (October 2024) has made some changes to BR moving forward, it is still viewed as an important tax relief vehicle not only to family-owned businesses, but also to investors in Business Relief-qualifying companies.

Summary

The challenge of devising a path that is right for you can be a minefield, time-consuming and effectively a deterrent from doing something that can be very beneficial in the first place. If you would like advice on how to plan your investment strategy, including help in setting and achieving your objectives, please contact one of our advisers for a complimentary consultation.

Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of financial advice. We recommend that you take financial advice before making any financial decisions.